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Best States For Business 2016

I've long been saying that demonetisation needs to be seen as one part of a process, not a single event in and of itself. Declaring that extant RS 500 and Rs 1,000 notes are no longer legal tender, to be replaced, is something that will wash out some portion of the black money swirling around the Indian economy. By no means is it going to be a total solution to anything, not even just the black money problem, which is why there are so many other interlocking actions taking place. There's the chase into the Swiss bank accounts for example, with the coming automatic exchange of information. There's the drive to expand the number of Indians who are banked, thus making cash itself a less important part of the economy. There's today's announcement that BJP legislators will have to provide bank records to the party to see who was sitting on large piles of said cash. And, wonder of wonders, the process has even managed to generate an interesting question from Arvind Kejriwal and a political process that can manage that is mighty powerful.

NEW DELHI: Prime Minister Narendra Modi today asked BJP MPs and MLAs to submit details of their bank account transactions between November 8 and December 31 to party President Amit Shah November 8 was when PM Modi announced that the old Rs 500 and Rs 1,000 notes would be scrapped at midnight, and December 31 comes a day after the deadline for depositing demonetised notes in bank accounts.

This is a political move, of course it is. Who scrambled to put large cash holdings into the banks after the announcement? Given that running notes through a bank account was, at risk of undeclared income being taxed at penal rates, the only legal manner of preserving the value of those demonetised notes. One can imagine two outcomes, either being politically useful. That no one deposited very much, thus showing that the BJP is "cleaner" than other parties are suspected to be. Or that some were found to have deposited large amounts and that they then get punished. Either outcome would increase support for demonetisation itself.

"The Prime Minister also said that the new amendments to the Income Tax Act introduced on Monday were not a window to make black money into white but to harness resources for deployment in welfare schemes for the poor," said Mr. Kumar.

Finance Minister Arun Jaitley introduced amendments to the IT Act on Monday that allowed for 50% tax on previously undisclosed income.

As I've said, we need to look at this as a process. The extra tax on money washed through the banking system is another part of the plan. However, wonder of wonders we have also had an interesting question from Kejriwal. Forgive me if I am not entirely enamoured of him--he's a politician on the stump and I generally do not trust such even in their use of the words "and" and "or". I cannot recall whether he said that victory in Punjab would mean drug addiction being wiped out there in one month or three but politicians at election time are known to, umm, perhaps exaggerate the good they will do with the power they are seeking. If exaggerate is a strong enough word there.

NEW DELHI: After Prime Minister Narendra Modi said today that BJP lawmakers need to submit their bank transaction details since the currency ban, Delhi chief minister Arvind Kejriwal said the PM should ask for their transaction details of the last six months.

It being Kejriwal who is making the allegation (which I do not believe) that the news was selectively leaked to BJP lawmakers. Given that banks do provide statements on a regular basis to customers it wouldn't be difficult to expand the period of time which would be monitored. And checking that time period would also put to rest, as I believe it would, Kejriwal's allegations. Or, if not, allow Modi to prove that the BJP really means business by dealing with any suspect movements.

This might all seem a bit political for a place which is about economics. But my view of demonetisation itself is that it's a necessary piece of politics in order to improve the economy. I generally insist that cash payments, even cash payments which evade let alone avoid taxation, are a modestly good thing. Even a good thing in modest amounts. The state has far too much power over us all in general and cash allows us to side step some of that control. But there's a limit to what "modest" means and I think India has gone long beyond that. Large portions of the country think that the game is irredeemably slanted against them, that it's simply not fair or honest in its rules. And that is caustic to an economy--economists make much of how important institutions are in economic development. One such being that general faith in the rules of the game. Without that there will be no investment, no consideration of the long game of development, there will just be a live for the day approach, something not conducive to that development.

The aim and purpose here is not so much to suck out the black money, not to lower interest rates, increase tax collections or the myriad of other side effects. It's to impress upon people that the Indian economy is fair. At which point, much though it might grate, why not adopt Kejriwal's idea? If banks accounts are to be examined cover the period before, as well as after, the demonetisation announcement. To do so will either kill off the idea of preannouncement to the select few or allow the punishment of those who were, as I do not believe any were, privileged with prior information. Either outcome being something which will achieve the aim of the campaign as a whole, to increase economic trust.